AGI
Adjusted Gross Income — your total gross income minus specific deductions (adjustments), used as the basis for calculating taxable income and eligibility for various tax benefits.
Example
“Her AGI of $80,000 qualified her for a partial Roth IRA contribution, as the income limit begins phasing out at $73,000.”
Memory Tip
AGI = your income ADJUSTED (reduced) by certain deductions. The foundation of your tax return.
Why It Matters
AGI is crucial because it determines how much income tax you owe and whether you qualify for valuable tax credits and deductions like the Earned Income Tax Credit or education credits. A lower AGI can save you thousands of dollars in taxes and help you access benefits you might not otherwise be eligible for.
Common Misconception
Many people believe AGI is the same as gross income, but AGI is actually your gross income reduced by specific adjustments such as contributions to traditional IRAs, student loan interest, and educator expenses. Understanding this difference is important because your tax liability is based on AGI, not your total gross income.
In Practice
Suppose you earn $60,000 in wages and contribute $5,000 to a traditional IRA and have $2,500 in deductible student loan interest. Your AGI would be $52,500 rather than $60,000, which could lower your tax bill significantly and potentially qualify you for tax credits you would not have been eligible for at the higher gross income level.
Etymology
Acronym for Adjusted Gross Income. GROSS income ADJUSTED downward by certain deductions.
Common Misspellings
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Related Terms
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See Also
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